We are at an interesting juncture. Please note, I’m also not an expert on this subject nor I claim to have superb understanding of these recent developments.Just wanted to share some things which is going in my head.

I agree and also didn’t like terms of raising a preferential allotment at a price with such deep discount to the market price. But the interesting thing is, would we be having this conversation just a week back? The stock gave 60-65% move in just a single week that means somebody has reacted to that move before the communication was released or may be at the news of fund raise or MoU news with Tamil Nadu Government. Before the price move last week, the same fund raise would have been appraised by me at least.

I don’t understand the good vs bad about this. So I was specifically looking for the price move today to gauge how the market feels about this. I was expecting a down circuit (-10%) but to my surprise 6% down move was I guess a profit booking exercise more than anything else. Still not sure how the coming days would fare or if there would be further deeper corrections but it feels like market’s collective wisdom is taking a breather just like everyone of us.

Infusion of capital in the most general sense is fundamentally good at least from business operation point of view and gives signs that business is looking for growth in the coming days. We can argue about the quality of growth or the forensics involved but Growth is by far the least doubtable reasons whenever any management talks about QIPs, Preferential Allotments, warrants and similar stuffs.

Lastly, as per the disclosures even all the promoters except Ashish Bansal (who can be allotted warrants) will face equity dilution like most of the retail investors…right? So would the promoters not participating in such Preferential Allotment agree to it? May be Yes…if there is some internal evil malice plan…or if there is a true need of capital to build something bigger…and No… if they think the discount is too steep and does look like a bad deal in terms of their own equity dilution.

What can we do – this is still at the proposed stage correct…? We can collectively vote against it… I understand it sounds funny and might not mean much. But thats one of the way to show the dissapoint ment and other being getting out of the train?

The reason why we are thinking about this is simple… Risk is synonymous to returns…and like a coin, it is only possible to face a single side at once, with just a brief idea about what’s on the other side looks. The question is…which one should we prioritise over the other?

Disc: fully invested (no trading in the last 30 days)

Dr. Rohit ji…Phantom digital has acquired Distribution rights at 17 Cr for Overseas territory…These rights are sold to “Hamsini Entertainment” who further sold it to other country specific distributors barring USA

Coming to your question on will Phantom digital receive any profit share from collections too.

Since the deal is on a “Minimum Guarantee / MG” basis, we need to understand little bit on this type of deal. The MG deal comprises of two parts.

• Part A, is the initial amount along with the profit percentage which the seller/ Phantom would seek and to be paid in total before movie release.

• Part B, is basis the actual collections for that territory. In our case it will be basis “Overseas territory” collections only. Profit is shared if the collections for this territory cross certain threshold limit

Generally, MG deal is done to minimise the risk between the buyer and seller.

On Part A collection…During EGM meeting for QIP, Bejoy / CFO mentioned that they had already received 50% amount and the remaining amount will be received before movie release. Since the movie is already released we can assume that they would have got 100% payment by now.

On Part B collection and profit sharing… movie has got a good talk especially VFX portion…it is running successfully all across, with collections increasing day by day…even today 15th being a holiday in TN and I guess in USA too collections are increasing compared to Sunday… 16th TN collections will be high again as most of the theatres are already sold out or fast filling and more shows getting added but Overseas would drop and pick again in weekend

My view is that Phantom digital wasn’t looking to make huge profits out of it as their main intention was to showcase their VFX capabilities to the world, but the project got into financial trouble as one of the producer (24AM Studios) moved out and Phantom got in to support other producer (KJR Studios) from financial challenges so that the movie gets released and they will be able showcase their work…I guess they have achieved what they wanted with flying colours, the feedback on VFX is highly positive all across and is also acting as a strong contributor to overall movie’s success

Having said that, at this stage we don’t know the profit margin for part A and threshold limit plus profit sharing percentage for part B

I believe Phantom would not have sold it at cost for sure…for Part A, they might have taken a profit percentage anywhere in the range of min 10 to max 35% (inline with company’s profit margins) and would have left the remaining profits for part B which if it comes would be an added bonus

We can get more clarity on part A profit percentage and part B threshold limit details during Q3 concall (request callers to please ask these questions)

Part B portion will be realised only after Telugu and Hindi releases, probably in another month or so …I guess this would add another 50-100% above the final Tamil overseas collections

In short, PhantomFX is already in profit and received their money… profits from overseas collections if any will be an added bonus

D: Invested and positive on VFX Industry

At a PE of 77 times, at a market capitalization of INR 1 LAKH CRORE, the upside looks limited for anyone entering into this stock at this point in time. The market is ready to pay a premium for this company because of how good it has positioned itself in the API business.

Pros:

• Best operating margin in the industry, given that it is an API manufacturer which is a commodity business. It has been able to achieve this by making complex APIs, which required complex chemistry and has few competitors
• API exclusive manufacturer, has good relationship with BIG Pharma players and generates a major chunk of it’s revenue from the export markets, hence the high margins
• Kakinada plant is expected to go live by the end of this year (OR early next year if we’re being conservative) which will be used to manufacture KSMs, Nutraceuticals and Intermediaries
• It has ventured into contrast media APIs, which is a good opportunity with few players

Cons

• Extremely expensive, I don’t see a lot of upside. Would be interesting how they grow their profits from here
• Operating margins, although high have been declining over the last few years

I’ve written a detailed article if anyone wants to read it – talking about the different segments of the Pharma industry + Divi’s B-model – Investing in Pharma [Part 1] : Divi’s Laboratories

Disclaimer: Used to own the stock, offloaded my position after the recent run up. Looking to buy again if the stock corrects significantly (i.e. > 15% from CMP)

High interference by govt.

Here is some more to add from other members.

And of course this, in case you did not know.

And there exist members who have shown interest in the stocks even if something has happened, after price has fallen sharply, to them, these are opportunities.